Afme presses banks’ case for Brexit transition deal

As Barnier warns against 'risky' haste in Brexit talks, the financial lobby group calls again for a transitional deal

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By

Samuel Agini

April 5, 2017 Updated: 10:47 a.m. GMT

The banking industry has a good chance of securing a Brexit transitional deal, according to the Association for Financial Markets in Europe, which says it detects growing receptiveness from politicians to the idea.

Afme chief executive Simon Lewis said in a report from the trade body today: "Both the UK government and the EU27 are signalling their willingness to explore a phasing-in period."

This "will be vital to underpin the functioning of Europe's capital markets through the process", he said, since the industry "will clearly need more time" to prepare effectively for Brexit than the two years provided for in Article 50, the formal mechanism for leaving the bloc.

Lewis added: "The sooner that a phasing-in period is confirmed then the smoother the adjustment process will be."

The EU's chief Brexit negotiator, Michel Barnier, said today the UK should expect a long and difficult negotiation process. According to the FT, he described the UK's desire for a swift process involving parallel talks on exit and a new trade deal as a "very risky approach" - arguing that haste could increase the chances of talks collapsing.

Afme, which represents banks and other capital markets players across Europe, said uncertainty over the talks' outcome had forced most banks to assume a "hard Brexit" scenario.

That would leave "little or no provision for market access across jurisdictions and where the existing third-country equivalence provisions in EU regulation cannot be relied upon for permanent market access".

Jamie Dimon, CEO and chairman of Wall Street bank JP Morgan, wrote to shareholders earlier this week that it would be "irresponsible" to presume anything other than a "hard exit" by the UK.

In it's report, Afme highlighted a series of implementation challenges for wholesale banks, their clients, and supervisors.

A particular difficulty looms for clients that hold, or plan to hold, long-dated contracts such as swaps, loans or cross-border revolving credit facilities, according to Afme.

The lobby group said: "The main risk is that after Brexit, a bank which had signed a contract may no longer have the required approvals to lawfully perform the services it had committed to, or could no longer access the necessary market infrastructure."

Afme said that expertise in markets supervision is in "relatively short supply" in many of the remaining 27 members of the EU. The lobby group said that Brexit will require "supervisory capacity to follow a changing pattern of markets and banking business".

International banks based in the UK must address the need to establish or expand entities in the rest of the EU, obtain the required licences and approvals, secure staff and premises, build technology and integrate with new market infrastructure, Afme said.